Coolsavings gets $15M, lays off 47

Majority ownership of Chicago-based Coolsavings.com Inc. could soon be in the hands of media company Landmark Communications Inc.

Norfolk, Va.-based Landmark on Tuesday gave the distributor of online coupons a $15-million lifeline. In return, Landmark, which owns several media organizations including the Weather Channel, will gain control of Coolsavings' board and, potentially, a controlling stake of its outstanding shares.

Also, the company on Wednesday announced it laid off approximately 47 people or 26 percent of its staff.

Coolsavings, which has struggled in the dot.com downturn, gets immediate access to $5 million in loans to continue operations and pay down debt, said Matthew Moog, the newly named CEO and president. The company later will have access to an additional $10 million in preferred equity financing.

Landmark expects the infusion to sustain the life of Coolsavings through at least the rest of this year.

Also on Tuesday, Coolsavings made several changes to top management. Steven Golden, chairman and CEO, resigned. Mr. Golden founded Coolsavings in 1994 and has been its chairman and CEO since 1996.

Mr. Moog, who had been president and chief operating officer, said Mr. Golden stepped down for personal reasons and not as a condition of getting the funds from Landmark. Mr. Golden remains the company's largest individual shareholder and will remain on the Coolsavings board.

Chief Financial Officer Paul Case also resigned. Laurie Streling, senior vice-president and controller, will assume his responsibilities temporarily, until a replacement is named. And, Richard Rogel, an early investor in Coolsavings, becomes the non-executive chairman.

As part of its financing deal, initially Landmark will gain two seats on Coolsavings' six-member board. After the next two $5-million infusions are completed, Landmark gains a majority of the board seats and the right to elect the remainder of the board. But the company said Landmark will leave the incumbent members of the board in place until May 2003. The board's size could conceivably grow and add more members, Mr. Moog said.

Landmark's subsidiary, Landmark Ventures VII LLC, is the source of the financing and has the option to buy up to 49% of Coolsavings stock. Coolsavings already has provided Landmark with warrants to purchase nearly 20% of the company's outstanding stock. After the second round of funds are received in October, Landmark is expected to control a majority of the Coolsavings' outstanding common shares.

Mr. Moog said Landmark typically gives its business units autonomy and offers additional resources. "This is more than a venture capital firm dumping money into the company," he said. "They come with extensive advertising and marketing skills," although no changes are immediately planned.The new financing and senior executive shakeup comes at a time when the company is facing financial and legal challenges.

In addition to worries over a stock price that hasn't topped $1 since mid-February, mounting losses and dwindling cash, Coolsavings faces a threat to its revenue-generating patent.

The patent, which has generated more than $1 million in royalties, is under scrutiny by the U.S. Patent and Trademark Office -- the result of legal challenges from two competitors -- which could invalidate the patent or limit its scope. The patent covers the process under which Coolsavings collects demographic information about consumers, such as age, income and product preferences, and shares that information with advertisers (Crain's, March 19).

And, with shares trading below $1 for more than a month, Coolsavings faces delisting from the Nasdaq Stock Exchange. Nasdaq officials notified the company about the delisting during the first week of July and the company is appealing the ruling (ChicagoBusiness.com, July 12).

Shares closed down 3 cents to 37 cents on Tuesday.

Landmark's financing is a needed shot in the arm. Matt Davies, a research analyst with J.P. Morgan & Co. in San Francisco, said Coolsavings' balance sheet was down to less than $10 million according to its first-quarter financial results, he said. At the end of March, Coolsavings had $8.9 million in cash and other assets and had secured some private financing.

Coolsavings has faced a difficult advertising market, mounting losses and dwindling cash in recent quarters. In fiscal 2000, Coolsavings had revenue of $39.9 million and posted a loss of $34.7 million, or 96 cents per diluted share.

In the first quarter 2001, the company had net revenue of $6.3 million, expenses of $12.9 million and a loss from operations of $8.5 million. The lackluster numbers were largely attributed to a decline in advertising.

In May, during the company's first-quarter conference call, Mr. Golden alluded to the company receiving "a significant round of financing" later in the year (ChicagoBusiness.com, May 10). The company also considered finding a merger partner.

Coolsavings had two rounds of layoffs this year, cutting 33 jobs in February and 67 in March. The company currently employs about 130 people, a spokeswoman said.